Captain to blame, Costa chairman says

Lipcon, Marguiles, Alsina & Winkleman, P.A

January 17, 2012

By By ELAINE WALKER
Miami Herald

MIAMI, Fla. – The chairman of Costa Crociere on Monday blamed the captain’s decision to take an unauthorized route for causing the cruise ship to hit rocks off Italy’s coast, an accident that has claimed at least six lives and will cost the Miami-based Carnival Corp. as much as $95 million in lost revenue this year.

Costa Chairman Pier Luigi Foschi said at a news conference in Genoa that it was Captain Francesco Schettino’s “human error” that brought the ship carrying more than 4,200 passengers and crew too close to the shores of Giglio island where it ran aground, gashing its hull. The Costa Concordia’s route was set electronically before it left Civatavecchia near Rome.

“We can’t deny that there was a human error,” Foschi said. “The route had been properly programmed in Civitavecchia. The fact that the ship strayed from that course can only be due to a maneuver that was not approved, not authorized nor communicated to Costa Crociere by the captain of the ship.”

While the captain has the final decision to adjust the ship’s course, that move is typically done only because of bad weather or an emergency. Foschi said. Schettino apparently rerouted the ship to “pay a salute” to the island of Giglio and struck rocks that were above the water line, Foschi said. As far as he knew, the captain had not been drinking alcohol.

The Concordia shipwreck took its toll Monday on Carnival’s stock, which dropped 16 percent in Europe, the biggest decline since 2000. U.S. markets were closed in observance of Martin Luther King Day.

Carnival said it expects the Concordia to be out of service at least until November, the end of the fiscal year, and possibly longer. That will impact 2012 earnings by $85 million to $95 million or 11 to 12 cents per share, according to guidance issued by the company. Carnival is self-insured for the loss of use of the Costa Concordia.

“We are deeply saddened by this tragic event and our hearts go out to everyone affected by the grounding of the Costa Concordia and especially to the families and loved ones of those who lost their lives,” Carnival Chief Executive Officer Micky Arison said in the statement.

Industry analysts are sensitive to the impact this will have on future bookings, especially in Europe, which has become a larger part of Carnival’s business. European brands in total represent about 37 percent of Carnival’s fleet, with Costa accounting for about 16 percent of Carnival’s available passenger cruising days, according to UBS Investment Research.

“The timing of the incident could be particularly disruptive given it is early in Wave season, which is the highest booking volume period of the year for cruise lines,” wrote Robin Farley, an analyst with UBS wrote in a note Monday to investors, where she lowered 2012 earnings estimates to $2.55 per share, down from $2.75.

A decision had not been made as to whether the Concordia, which toppled over as it took on water, needs to be declared a total loss, Foschi said. The Concordia cost $450 million to build when it entered service in 2006.

Carnival has insurance covering damage to the ship, with a deductible of about $30 million, the company said. It also carries third-party personal injury liability insurance, which carries a deductible of about $10 million for this incident.

But the insurance loss could be $500 million to $1 billion, depending on liability claims, exceeding the loss from the Exxon Valdez disaster including pollution, said Joy Ferneyhough, an insurance analyst at Espirito Santo Investment Bank.

Carnival said it expects others costs to its business that are “not possible to determine at this time.”

Cash costs, excluding the capital cost of the ship, probably won’t exceed $1 billion, which Carnival should be able to withstand, said Wyn Ellis, an analyst at Numis Securities in London who reduced his recommendation on the stock to “hold” from “add.”

“Consumer sentiment soon recovers following such tragic events, and we do not expect there to be long-term negative consequences for demand,” Ellis said. “Tragic accidents happen with greater frequency and, sadly, often greater loss of life, in the aviation and rail industry and this does not prevent people using these modes of transport.”

At least one Miami lawyer voiced skepticism over Costa’s blaming the accident completely on the captain, calling it a combination of defensive public relations and pre-litigation maneuvering.

“There’s a big reason they immediately want to dump on the captain,” said attorney Mike Eidson, a Coral Gables personal injury attorney who has litigated against Carnival and others for decades. “First, they want to protect the industry and show that this is an isolated case. They need people to believe cruising is safe and this is a freak incident caused by the carelessness of one person.

“Why didn’t the ship have modern safety equipment to provide a failsafe back-up?” he said. “There’s no way that it’s acceptable for them to blame this on one person. They’re trying to escape punitive damages.”

Foschi said that because the captain manually reset the course, none of the ship’s normal alarms sounded alerting anyone to rocks along the shore.

Several South Florida attorneys agreed that based on the standard Costa cruise ticket, passengers on the Concordia will likely have to file any lawsuits in Genoa, where the cases will be subject to Italian law.

“The law there is very favorable for victims,” said Charles Lipcon, a Miami attorney who specializes in maritime law and has already been retained to represent some of the crew of the Concordia.

“In some cases, they can get more money there than in the U.S.”

At issue will be whether the courts agree to uphold the stipulation in the Costa cruise ticket limiting the carrier’s liability to about $70,900, based on what is known as the Athens Convention.

One way to get around this limit will be proving the carrier acted recklessly or intentionally, said Bob Peltz, a Miami maritime attorney with Leesfield and Partners, also an officer with the National Maritime Law Association.

“It seems if you run into a stationary object, that might take it out of basic negligence and put it in the area of recklessness,” Peltz said.

* Disclaimer required by the Florida Bar: The numbers above are the gross recoveries, before deduction for attorneys fees and expenses. Most cases result in a lower recovery. It should not be assumed that your case will have as beneficial a result.